kent thiesse cover

Kent Thiesse

On March 27 President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law, following unanimous passage by both the U.S House and Senate. The CARES Act authorizes up to $2.2 trillion in aid and financial assistance do deal with the health and economic impacts from the Covid-19 virus pandemic in the United States. This is one of the largest and most comprehensive financial bills ever passed by Congress. The legislation will impact nearly every citizen of the United States and most aspects of the U.S. economy in some shape or manner, including farm families, rural communities, and the U.S. agriculture industry.

Overall, the CARES Act provides approximately $48.9 billion for United States Department of Agriculture programs. An important portion of this funding, $14 billion, is allocated as additional funding authority for the USDA Commodity Credit Corporation (CCC). The CCC funds were used to make the 2018 and 2019 market facilitation program payments to specific crop and livestock producers, as well as to fund other USDA programs. The aid package also authorizes an additional $9.5 billion emergency fund that is targeted toward dairy and livestock producers, fruit and vegetable growers, and fresh food markets.

The CARES Act provides $15.5 billion in additional funding for the USDA Supplemental Nutrition Assistance Program (SNAP) and an additional $8.8 billion for child nutrition programs. While not providing direct assistance to farmers, added funding for these programs will help maintain and increase demand for certain ag products. The dairy industry and fresh food markets have been hit especially hard by the lack of demand due to school closures and the shutdown of restaurants across the United States. The legislation also provides some added support to rural hospitals and medical services, as well as for other local government functions.

Many farm families may also qualify for the direct cash payments to families and individuals that are included in the CARES Act. Any individual who earned less than $75,000, based on the adjusted gross income in either their 2018 or 2019 federal tax return, would receive a direct payment of $1,200 from the federal government. Married couples with an adjusted gross income of less than $150,000 would receive a payment of $2,400. There would be an additional payment of $500 for every child claimed on the 2018 or 2019 tax return. These direct aid payments are expected to be made in April.

The CARES Act allocated $350 billion to the U.S. Small Business Administration for emergency loans to help small businesses keep employees working and to keep their businesses operating during these challenging times. The portion of the SBA relief package getting the most attention is the Payment Protection Program (PPP) which provides 100 percent federally guaranteed loans to small businesses to assist with those efforts. It appears that many farm operations and ag related businesses will likely qualify for the PPP loans — especially those with monthly payroll payments and those which have regular funds withdrawn for ownership and management payments. PPP loan applications are made through SBA-approved banks and lending institutions.

The CARES Act also provides funding for SBA Economic Injury Disaster Loans (EIDL) for small businesses that incur financial hardship as a result of the coronavirus outbreak. As of this writing, there was a considerable uncertainty regarding the potential eligibility of farm-related businesses for these SBA loans. Loans through the EIDL program are made directly by SBA and do not require approval by a local bank or lender. For more information on the EIDL program or to make on-line EIDL applications, businesses should go to the SBA website at  https://www.sba.gov/funding-programs/disaster-assistance     

Ag-related Questions

Does the added CCC funding in the new CARES Act automatically mean there will be a third round of MFP payments (or something similar) in 2020 ?

Not necessarily. The 2018 and 2019 MFP payments were related to lost income due to the trade war with China and other countries. It is not apparent if the coronavirus will necessarily impact the new trade agreement with China or ag trade with other countries. However, given the added funding provided to the USDA and the CCC through the emergency legislation and the financial challenges facing farm operations, it is highly likely that some form of assistance similar to MFP will be made available to farmers and ranchers in the coming months. The aid package will likely look different than the 2018 and 2019 MFP payments, and the aid will likely involve more commodities — especially with the added USDA emergency fund which is targeted toward dairy and livestock producers and others.

What strategies can be utilized following the sharp price decline for unsold 2019 corn and soybeans that are still in storage on the farm ?

Many farm operators have a considerable amount of unsold 2019 corn and soybeans in farm storage. Following the coronavirus outbreak in the United States, there was an immediate sharp drop in local grain prices — resulting in cash corn prices to drop 70-80 cents per bushel in just a few weeks at many Midwest locations. In addition, many ethanol plants and other local grain markets are currently not accepting corn or only doing so on a limited basis. One strategy farmers could utilize to get some temporary revenues from their unsold grain in storage is to utilize the CCC commodity loan program through local Farm Service Agency offices. The length of CCC commodity loans has been temporarily extended from 9 months to 12 months. Local CCC loan rates vary from county-to-county. Loan rates are generally slightly over $2.00 per bushel for corn and $6.00 per bushel for soybeans in many areas of the Midwest. The current interest rate in April on CCC grain loans is only 1.625 percent. Be aware that due to the coronavirus, most FSA transactions need to be completed via phone or e-mail.

Will the decline in cash grain prices impact 2019 farm program payments ?

Any 2019 farm program payments for the PLC, ARC-CO and ARC-IC programs will be based on the final 2019 market year average prices for corn, soybeans and other crops. The 2019 market year average price for corn and soybeans is based on national average monthly farm-level prices from Sept. 1, 2019 through Aug. 31, 2020, which are weighted for the percentage of bushels sold in each month. The USDA 2019 market year average price projections as of March 1 were $3.80 per bushel for corn and $8.70 per bushel for soybeans. However, many analysts expect the final 2019 market year average prices to decline slightly in the coming months. Further declines in the market year average prices would potentially enhance the amount of 2019 ARC-CO and ARC-IC payments for producers who are already likely to qualify for payments if they have not reached the maximum payment level. It could also make a few more counties potentially eligible for some 2019 corn and soybean ARC-CO payments. Corn and soybean PLC payments for 2019 still appear unlikely at this time, as do ARC-CO payments for corn in many counties.

Why is it important to communicate with your ag lender, farm management advisors and family partners during financial challenges we are currently facing ?  

            View ag lenders, farm business management instructors, marketing advisors, and other consultants as informal partners in a farm business. Ag lenders and others can be a valuable resource in making management decisions and understanding some of the emergency financing tools which may be available.

            It is best to include all partners and family members who are part of the farm operation in the discussion process so all key players are “on the same page” regarding financial decisions and adjustments which may affect the farm business. The added financial difficulties being brought on by the coronavirus also adds a lot of personal stress for farm operators and their families. Families are encouraged to utilize  the free resources which are available at the state and local level to assist in these situations.

Kent Thiesse is a government farm programs analyst and a vice president at MinnStar Bank in Lake Crystal, Minn. He may be reached at (507) 726-2137 or kent.thiesse@minnstarbank.com.